When you’re starting a nonprofit, your top priority is likely boosting your organization’s positive impact on the world. A nonprofit’s work is mission-centric, but to keep this essential work alive, founders and staff members must also think about the legal logistics of their organization’s operations. For example, before planning a fundraising event, you must first register to fundraise.
Just as nonprofits are distinct in their work, they’re also distinct in their legal structure. Noncompliance with fundraising compliance requirements can carry serious consequences, so it’s important to be familiar with the rules. Consider these four fundraising compliance requirements before starting your mission-driven work:
1. Initial application to fundraise
Before you ask for donations at all, you’ll have to register for charitable solicitations. This is basically an application to fundraise—you’ll need permission to ask for donations based on your nonprofit’s eligibility to raise money for a charitable purpose. The list of fundraising methods that count as charitable solicitations includes:
- Direct mail
- Verbal solicitations
- Paid advertisement
- Social media posts
- Fundraising event
- A donation request on your nonprofit’s website
Essentially, if you’re asking someone to donate to your organization in any way, it’s considered a charitable solicitation. This is a state-level regulation, so you’ll need to find out if you’re required to register before planning fundraisers or accepting donations of any kind. The majority of states require this application, but there are nine that don’t:
- Delaware
- Idaho
- Indiana
- Iowa
- Montana
- Nebraska
- South Dakota
- Vermont
- Wyoming
If your state requires you to register, you’ll need to track down the application to fill out. But even if your state doesn’t require an application, larger fundraising campaigns that take place in multiple states still might not be in the clear. Read on to find out why.
2. Registration for charitable solicitations in multiple states
It’s not just about where your nonprofit is based—charitable solicitation rules will be enforced if any of your fundraisers or solicitations target several states. Your nonprofit can’t generate revenue in a state that requires registration without filing the necessary paperwork.
Let’s say your nonprofit is based in Delaware, but a lot of your social media followers are from Maryland. You find that many Maryland residents are receptive to your mission and, as a result, you target them in your digital marketing efforts. This would violate charitable solicitation requirements because, even though your nonprofit is based in a state that doesn’t require registration, you weren’t registered in Maryland and asked for donations there.
Contact state offices directly to learn about their registration requirements and processes. State registration requirements vary, but usually depend on several factors surrounding your nonprofit, such as:
- Location: The location of your nonprofit’s incorporation and marketing efforts is the prime factor in determining registration requirements.
- Gross revenue: Your nonprofit might bring in revenue that isn’t from donations, like program revenue. This could still count as a solicitation and require you to register.
- Purpose: Some states exempt religious groups from registration, so regulations may be different depending on the nature of your nonprofit.
On the flip side, be aware of over-registration. You don’t necessarily need to register in a state just because you have one donor who lives there and gives regularly. Registering in every state is a little excessive and can be financially burdensome to your nonprofit. Instead, examine your national reach and register in states where you’re actively reaching out to donors.
No matter what state you’re in, registration should precede solicitation. Before asking for donations of any kind in a particular state, make sure you’ve properly registered.
3. Annual renewal of fundraising compliance
To maintain your nonprofit’s compliance, charitable solicitations registration has to be renewed annually. This can require submitting a completely new application, program information, financial information, and a filing fee every year.
Also, some states add or change charitable solicitations laws frequently, so you have to keep up with your state’s requirements if you want to avoid noncompliance. Just like you’d keep track of fundraising through a bookkeeping ledger, it’s important to make sure you’re filing all the necessary paperwork with state and federal agencies.
Make sure to keep copies of all your financial records and tax information to make this application renewal easier every year. Also, save copies of your actual applications. Whether they’re digital or physical applications, it’s important to keep track of everything you’ve filed for your own records.
4. Penalties for noncompliance
We’ve gone over the requirements for fundraising compliance, but what is required of you when you don’t comply with fundraising laws? The penalties for failing to register are serious:
- Fines and legal charges: Some states can charge several thousands of dollars per violation.
- Stopped operations: States can prohibit your organization from conducting any of your regular operations if you’re noncompliant.
- Reputation: Information about noncompliance can be public, and especially evident if your organization stops operations.
According to Foundation Group, it’s important to take these laws seriously, not just to avoid the consequences, but because successful nonprofits are “run according to best practice, transparency, and in full compliance.”
Donors research registered charitable organizations before donating. By maintaining your compliance, you’re providing the security donors need to feel like their money is funding a reputable cause.
According to Double the Donation, “nonprofits of all sizes routinely leave a lot of potential revenue on the table.” Don’t miss out on potential revenue because of a forgotten application.
For an organization that depends on donor support, the last thing you want to be known for is failing to follow the rules. Research your state’s requirements for nonprofits so you can ensure you’re doing everything right.
The ongoing upkeep of your nonprofit’s compliance can be difficult to manage, especially since charitable solicitations registration is just one of the many applications nonprofits are expected to file. If this to-do list becomes overwhelming, consider hiring an expert to guide you through the process and file the necessary paperwork on your behalf.